If you want to scale your small business, you’re going to need a way to find and keep great employees. One of the best ways to do this is by offering a good benefits package. Many small businesses are hesitant to offer employee benefits early on because they believe they can’t afford it. While scrimping on employee benefits could help you cut costs in the short term, it will end up hurting your business. It’s hard to attract top talent to your organization if you don’t offer any benefits. When employees receive benefits they value, they will be more committed to your business and feel more satisfaction in their work.
The basics of employee benefits
Employee benefits are a type of non-salary compensation and they can vary from company to company. They are given in addition to a salary and serve as a powerful motivator to incentivize potential employees to join your company. As an employer, there are certain benefits you are legally obligated to provide, including complying with the following state and federal regulations:
- Federal Family and Medical Leave Act (FMLA): This federal law requires employers to give their employees 12 weeks off after the birth or adoption of a baby. Employees can also receive time off in the event that an employee or one of their immediate family members suffers from a serious health condition.
- Workers compensation: Employers in every state are required to have workers compensation insurance. These benefits reimburse employees for lost wages or medical bills as a result of a workplace injury.
- Disability: Some states have short-term, state-sponsored disability programs. If you live in a state that offers this program, you’ll be required to contribute.
- Unemployment benefits: You’ll need to pay state and federal unemployment taxes, which provides benefits for unemployed workers.
- Minimum wage: The minimum wage is the lowest amount you’re required to pay your employees. This was enacted in 1938 as part of the Fair Labor Standards Act (FLSA). The current U.S. minimum wage is $7.25 per hour. However, some cities and states have set higher requirements than the federal minimum.
- Overtime: Employees who work more than 40 hours per week are required by law to receive overtime. You’ll want to check with your State Department of Labor to find out the overtime pay requirements in your area.
Of course, this is the bare minimum you are required to provide to your employees. And if this is all you give your employees, it’s not going to make your business very attractive to highly-skilled workers. That’s why many small businesses choose to offer additional benefits as well.
While scrimping on employee benefits could help you cut costs in the short term, it will hurt your business in the long run.
The 5 most common employee benefits
Additional employees benefits will come at a cost to your business, but most employers find that the pros far outweigh the cons.
Offering benefits like health insurance or dental insurance will give your employees peace of mind, and a great benefits package will help you create a strong workplace culture.
Listed below are the five most commonly offered employee benefits. Of course, this list is not exhaustive, and there are new benefits that are starting to gain popularity—like student loan repayment benefits and pet care.
Health insurance
Most employees view health insurance as one of the most important factors in an employee benefits package. For that reason, most employers choose to offer it.
According to the Bureau of Labor Statistics, 69% of private companies offer health insurance benefits. While this varied by company size, 55% of companies with fewer than 100 employees offered health insurance. Of course, this can get tricky for many employers.
Once you decide to offer health insurance, what percentage should you pay and what should employees be required to contribute? According to the Kaiser Family Foundation, employers pay an average of 82% for single coverage and 71% for family coverage. A broker can help you work out the details and figure out what your competitors and similar companies in your area are offering.
Dental insurance
Dental insurance is another common employee benefit, and the good news is that it’s far less expensive than health insurance. It’s commonly split 80/20 between the employer and employee, though you can adjust that ratio for your specific situation.
Vacation and sick time
Though it’s not legally required, potential employees are going to expect a certain amount of paid time off. Two weeks, or 10 days, is pretty standard for full-time employees. Plus, some companies let their employees acquire additional paid time off after they have been employed for a certain length of time. You can roll all paid time off together or separate it into sick, vacation, and personal days. Ultimately, you’ll want to go with what makes the most sense for your business.
Paid holidays
You aren’t legally required to give employees the day off for federal or state holidays. If you needed to, you could require your employees to work on holidays. However, at the very least, most companies give employees paid time off for the following holidays:
- Thanksgiving
- Christmas
- Easter
- New Year’s Day
- Labor Day
- Memorial Day
- Independence Day
Tuition assistance
One study found that 92% of U.S. companies offer some form of tuition assistance, including well-known companies like Starbucks and Chipotle. Some employers hesitate to offer tuition assistance due to the associated costs, and many worry that their employees won’t stick around long enough for them to receive a return on their investment. However, tuition assistance offers numerous benefits to companies.
When Chipotle began offering tuition assistance, the retention rate for employees in the program reached 89% after just five months. This was more than twice the retention rate of those who didn’t enroll.
Most employers do put a cap on the amount of tuition assistance they offer. The median yearly amount offered by employers is $5,250 for undergraduates. You can also require employees to stay with your company for a certain length of time in order to qualify.
When should I begin offering employee benefits?
Of course, no matter how much you would like to offer health insurance to your employees, you may not yet be in a position to do so. So, how do you know when you’re ready to begin offering your employees benefits?
- It makes sense financially. As soon as you’re financially ready, you should begin offering an employee benefits package. Keep in mind that there are low-cost benefits you can offer at nearly any budget. For instance, you could offer to let your employees work remotely once a week. The cost will be minimal for you but that could be an appealing perk to many millennial employees.
- You’re losing your best people. Ideally, you’ll start offering benefits before this happens. But, if you find yourself at a point where you’re struggling to retain your best employees, it’s time to take a look at offering a better benefits package.
- You have more than 50 employees. Once you reach 50 employees, the Affordable Care Act (ACA) requires that you begin offering your employees health insurance. The ACA doesn’t require that you cover the full cost of health insurance but it does mandate that you offer access. If you don’t comply, you’ll be fined $2,000 per employee.
How to administer employee benefits
Once you’re ready to get started and have decided what benefits you want to offer, you are responsible for administering the benefits. This includes
- Enrolling eligible employees
- Letting your employees know what benefits are included
- Withholding the correct funds from their paychecks each month
- Ensuring that benefits are administered correctly
- Allowing your employees to regularly update their selections
You can manage this internally or outsource it to another company. Before making the decision to manage it internally, be sure you understand the time and effort that will go into it. Most small businesses don’t have the capacity to manage employee benefits on their own, and choose to outsource certain tasks.
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